Hotel Real Estate Is on the Rise in the City of MakkahEHSAN BAYAT

Hotel Real Estate Is on the Rise in the City of Makkah

The city of Makkah features one of the most vibrant markets for hotel developers and investors in the Middle East. In terms of sheer population, Makkah is outranked by many other cities in Saudi Arabia, including Riyadh and Jeddah.

However, when taking into account the influx of pilgrims during religious holidays each year, the city accounts for as much as 3 percent of the entire Saudi GDP. Consequently, it maintains global status as the most prominent location in the Kingdom.

Real estate in Makkah can be divided into two zones: the area immediately surrounding the Holy Mosque, and the outer environs, where the majority of permanent residents live. Property development activity, both recently and trending into the future, largely takes place in the inner circle of the city. The Holy Mosque itself has undergone considerable modification and continues to expand.

Here is a look at how religious tourism is shaping the real estate market in Makkah, including information on a record-setting hotel opening in the near future.

Expanding the Holy Mosque

For roughly 1,400 years, members of the faith of Islam have journeyed to Mekkah to perform Hajj, one of the five central pillars of the religion. Nearly 2 million Muslims completed the pilgrimage in 2015, and another 5.9 million visited for Umrah, another important holiday.

The 1.8 billion followers of Islam are expected to grow by another 1 billion by 2050. In response to this projection, among other reasons, the Holy Mosque is undergoing a large-scale expansion.

King Abdulaziz and King Fahd oversaw two separate additions to the Holy Mosque between 1955 and 2005. More recently, King Abdullah announced another expansion in 2011, and the project is on pace for completion in 2018.

This third wave of development will add 456,000 square meters of real estate. With the new structure in place, the Holy Mosque will accommodate more than 1 million pilgrims at a time, or nearly double the previous capacity. Such space necessitates more hotel development in the area.

Saudi Vision 2030 Unveiled in 2016

The Saudi government introduced its Vision 2030 in 2016, and the plan features a number of initiatives for diversifying the local economy. Much like surrounding Middle Eastern nations, Saudi Arabia hopes to decrease its oil dependency to the greatest possible degree. Real estate plays a crucial role in the newly-outlined objectives, especially with respect to religious tourism.

For example, the vision includes a charge to double the amount of hospitality space in Makkah to accommodate the expected rise in tourism over the next several decades. Additional components of the plan involve bolstering the retail, entertainment, and dining markets, as well as supplying the necessary infrastructure to support the anticipated growth. Although these additions will be important, the bulk of the demand will rest on the hotel segment of the market.

The Hotel Market in Makkah

In their 2016 report on the Makkah real estate market, the researchers at JLL examined a variety of valuable metrics. They also identified a key trend emerging in the region’s hospitality industry.

The hotel sector has featured a number of properties for years, each bringing in a considerable amount of business. However, peak occupancy mainly occurred on a seasonal basis. During Hajj and the Ramadan season, most hotels reach full occupancy, with many guests staying nearly three weeks at a time.

Now, more international operators, such as Carlson Rezidor, have started to build properties in the area. This has begun to generate more year-round business in Makkah. The Park Inn by Radisson Al Nasseem Makkah and the Park Inn by Radisson Aziziyah Makkah, opening in 2016 and 2017, respectively, are examples of this trend, which is expected to continue.

As of the end of 2016, the estimated number of upper-midscale and luxury hotel rooms in Makkah totaled approximately 27,000. This is more than the total in Riyadh and Jeddah combined. The other strength in the city’s hotel market is its variety of real estate, with a high number of economy offerings catering to different demographics.

In addition to the current supply, analysts expect many hotels will enter the market in coming years. Several mega-projects are in the works, and with their completion, nearly 25,000 new rooms will be available to consumers. One of the most-anticipated properties, the Abraj Kudai, will provide yet another 10,000 keys for visitors and individuals completing the Hajj pilgrimage.

The Abraj Kudai Hotel

Slated to open in 2019, the Abraj Kudai will stand as the largest hotel in the world with 12 towers, four topped with helipads, and parts reaching 45 stories high. The 10,000 rooms will range in quality from four to five stars.

An entire section of the property is designed to accommodate members of the Saudi royal family. At a total cost of some $3.6 billion, the Abraj Kudai represents one of the major investments toward fulfilling the Vision 2030.